Momentum Monday – Potential Counter-trend Rally?

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The major U.S. stock indexes are still in a downtrend. There’s no doubt about that. And yet, there are some signs of an impending short-term counter-trend rally. Market breadth is improving. More and more stocks are setting up near their 10-day exponential moving average.

We covered the catalysts and the technical setups in a few dozen stocks and ETFs TWLO, OKTA, LULU, SPY, QQQ, XBI, UBNT, EXAS, VCEL, AAPL, SMH, NVDA, XLNX, etc.

Check out my latest book: Swing Trading with Options – How to trade big trends for big profits.

Momentum Monday – Lower Highs and Lower Lows

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The market correction continues in full force. Many momentum darlings are already down 20%, 30%, even 50% from their 52-week highs reached earlier this year. People often forget that momentum stocks are the best trading vehicles in both rising and falling markets. In a bull market, the typical momentum stock can deliver 10-20x the return that the S&P 500 does. In a corrective market, the same stock can easily underperform the general market by 4-5x. This is why every active trader should have a short strategy for weak markets. Every active investor should have an exit strategy to minimize drawdowns during corrections.

Check out my latest book: Swing Trading with Options – How to trade big trends for big profits.

Five High-Relative-strength Stocks That Crushed Earnings Estimates

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SPY and QQQ have recently pierced below 270 and 165 – levels that were considered important to hold. In addition, one of the best-holding sectors (the last bastion of hope) – retail, has been crushed in the past couple of days. The market mood is grim. The price range in the major U.S. stock indexes has contracted today. Market breadth is starting to improve. These are the exact conditions that might lead to a short-term bounce.

There are two types of stocks that tend to outperform everything else during market bounces:
1) The ones that got hit the worst (biotech).
2) The ones that held the best.

Here are five stocks that have recently beat earnings estimates and are showing notable relative strength (they went sideways or up while the market was declining): CDNA, VNDA, TWLO, AYX, DATA.

Check out my latest book: Swing Trading with Options – How to trade big trends for big returns.

Momentum Monday – The Correction Is Not Over Yet

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The post-election rally didn’t last long. Stocks are under pressure again. QQQ and SPY are at important pivotal levels. Will QQQ bottom around 165-166, make a higher low and make another attempt to close above its 50-day moving average or it will have another leg lower. Both are equally likely. With elections out of the day, the market will focus on tariff negotiations, earnings growth, and the Fed.

Semiconductors, tech, China, biotech, financials are leading to the downside. Select retailers and restaurant stocks continue to show relative strength.

Don’t forget to check out my latest book: Swing Trading with Options – How to trade big trends for big profits.

The Major Theme This Earnings Season

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The number of stocks that beat earnings estimates this earnings season is not that much different than any other earnings season. What’s different is the market reaction to many reports. We continue to see stocks getting crushed after reporting positive earnings surprises. The latest examples are Zillow, Match Group, and Roku, All of them reported earnings above analysts’ estimates but gave softer earnings and sales guidance. The market reaction has been unforgiving.

Past earnings are a snapshot of the past. Earnings guidance is forward-looking. Since the stock market strives to be forward-looking, it pays more attention to forward guidance.

Companies are typically very conservative when they provide any future guidance. The goal is to low-ball analysts’ estimates, so they can be easily exceeded next quarter. This is why is so rare and special when a company provides a strong guidance. Take a look at the market reaction to Twilio, Etsy, and Crox this week. All of them gave strong earnings guidance.

Check out my latest book: Swing Trading with Options – How to trade big trends for big returns.